Oil Surge and ECB Hike Pressure London Markets
London equities closed lower as Brent oil topped $105 and the ECB hiked rates, driven by geopolitical tensions and sticky inflation data.
London stock exchanges ended Thursday in negative territory as escalating military tensions between the US and Iran pushed Brent crude above 105 dollars a barrel. The energy spike, combined with hotter-than-expected US producer inflation, intensified concerns that global price growth will remain above central bank targets for an extended period.
The FTSE 100 index closed down 0.6% at 10,608.92, while the broader FTSE 250 fell 0.9% to 23,885.94. European peers mirrored the weakness, with the CAC 40 in Paris dropping 0.5% and the DAX 40 in Frankfurt declining 0.7%. Bond yields rose in tandem, with the US 10-year Treasury yield widening to 4.92% as investors reassess the interest rate outlook.
ECB Hikes Rates Amid Persistent Inflation
The European Central Bank raised its three key interest rates by 25 basis points, citing continued inflationary pressure from the conflict in the Middle East. The deposit facility rate now stands at 2.50%, while the main refinancing operations rate is 2.65%. President Christine Lagarde described the decision as unanimous, noting that policymakers did not discuss future moves despite the urgency of the current price environment.
The ECB’s latest projections indicate headline inflation will average 3.0% in 2026, remaining above the 2% target. While core inflation, which excludes energy and food, is forecast at 2.5% for 2026, the bank revised upward its growth forecasts, expecting GDP to expand by 0.9% this year. This upgrade reflects greater-than-expected resilience in the eurozone economy despite the headwinds from rising energy costs.
Retail and Mining Stocks Underperform
Sector-specific results diverged sharply amid the macroeconomic headwinds. Associated British Foods lost 7.9%, finishing at the bottom of the FTSE 100, as weaker-than-expected sales at Primark overshadowed its launch of a home delivery service. Summer heatwaves in the UK and Europe also weighed on the company’s grocery division, reducing demand for key product lines.
Industrial metal prices, particularly copper, fell sharply, dragging down London-listed miners. Antofagasta declined 5.7%, Anglo American dropped 4.9%, and Glencore shed 4.1% as commodity demand signals weakened. In contrast, defensive tobacco stocks outperformed, with Imperial Brands gaining 1.8% and British American Tobacco rising 1.5%, as investors sought stability in a volatile risk environment.
US Data Confirms Inflation Persistence
US producer prices accelerated by more than expected in August, rising 5.4% year-on-year compared to 4.8% in July. This figure exceeded the 5.3% forecast cited by FXStreet and the news agency GN stocks/shares-surge, reinforcing the view that inflationary pressures remain entrenched. The data arrives ahead of the Federal Reserve’s upcoming interest rate decision, complicating the path for monetary easing.
